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Market Update: Sterling rebound runs out of steam


CURRENCY CATCH-UP //
GBP

UK data reports this week are limited, with house prices and IP mainly, but the Halifax house price data reported a marginally stronger-than-expected 0.3% increase in prices for October, and a 4.5% rise in the year, taking price appreciation back to the levels seen around the start of the year. The main focus for UK markets this week is the restart of Brexit discussions on Thursday. Sterling was resilient throughout yesterday despite a fresh decline in UK bond yields as the recent strength in oil prices continued to provide net support.

Moreover, optimism over Brexit negotiations, following the UK Prime Minister Theresa May’s overnight comments, now seems to have receded, with resurgent USD demand exerting some fresh selling pressure and turning out to be an exclusive driver of the pair’s downslide. Brexit concerns remain poised to drive the sentiment around Sterling in the months to come, while the Bank of England (BoE) is expected to keep the monetary status quo unchanged at least to mid-2018.

Sterling, overall, found support close to 1.3100 against the Dollar before a recovery back to the 1.3170 area while the Euro continued to test the 1.1360 area. Sterling demand faded slightly this morning with a retreat in oil prices and underlying uncertainty surrounding the political situation ahead of the next round of Brexit talks limiting support. 

USD

Despite the ongoing upward trend, the Greenback should stay vigilant based on the headlines coming from the US political scene, particularly those regarding Trump’s tax reform proposal, which is now facing some internal conflicts among Republicans and faces strong opposition from Democrats.

IBD consumer confidence index came in above estimates at 53.6, while JOLTs job openings also beat consensus in September at 6.093 million. There were no comments on monetary policy from Fed Chair Janet Yellen and no nomination for vice chair.

Mostly positive US macro data released late last week added to market expectations for December Fed rate hike action, which, coupled with a modest pickup in the US Treasury bond yields, reignited the US Dollar rally on Tuesday.

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There are growing concerns for the Euro that the European Central Bank’s (ECB) decision last week to prolong the asset purchase programme will have a detrimental impact for the Euro. To add to this, German industrial production missed the expected drop of 0.7% and instead declined by 1.6% for September.

There was respite, however, for the Euro as retail sales beat expectations, coming in at 0.7% for September. This, however, failed to spark the market and Draghi’s speech complemented the programme as it placed banks in a strong position, despite shares in the Italian banking sector falling as their debt continues to rise. German bund yields continued to move lower during the day which sapped Euro support. 

During the European session, there were reports that ECB board members Weidmann, Coeure, and Villeroy opposed recommendations of chief economist Praet at the October meeting and wanted to tie overall monetary stimulus to the outlook for prices rather than the narrower focus on bond purchases. There was insufficient support within the council, but divisions will intensify if Eurozone growth accelerates further.

Today for the Euro, the six-week cycle for the ECB non-monetary policy meeting will take place.

Data to watch:

08:00 EUR Non-monetary policy’s ECB meeting
15:30 USD EIA Crude Oil Stocks change (Nov 3)
18:00 USD 10-Year Note Auction

— ROB AFFLECK AND THE SALES TEAM

EXCHANGE RATES //
GBP EUR 1.1335
GBP CAD 1.6778
GBP USD 1.3143
GBP NZD 1.9018
EUR USD 1.1594
GBP ZAR 18.6311
GBP AUD 1.7154
GBP JPY 149.590
GBP CZK 28.9596
GBP CNY 8.7229
* Please note that the table shows the interbank rates. If you would like to get a more accurate quote, call us on 02077380777. For more information visit our help pages.

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